Question

Distinguish between an Exchange and Non-exchange transactions with regards to Revenue received by Not-for-Profits. In your answer, provide ONE example each to illustrate.

Answer 1

Exchange Transactions	Non-Exchange Transactions
Transactions in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in form of cash, goods, services, or use of assets) to another entity in exchange	Transactions that are not exchange transactions. In a Non-Exchange Transactions, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.
A successful exchange transaction must meet specific conditions. The payer must provide the exact amount agreed upon between the payer and the payee on a specified day and time. In return, the payee must provide the product or service at the date and time specified by the agreement.	Non-exchange transactions have fewer requirements than exchange transactions. The payee in a non-exchange transaction receives the funds from the payer, but the payee is not required to deliver a product or service of equal value to the payer.
If either party fails to meet the terms of the purchase agreement, that party may face economic penalties, including late fees, surcharges or even lawsuits.	These transactions can be voluntary, such as with charitable donations, or compulsory, such as with income taxes and fines for criminal behaviour.
Most businesses fund their operations through exchange transactions. For example, a restaurant exchanges a steak dinner for money from its customers. The customers receive something of value in the steak dinner, and the restaurant receives its money, often for a substantial profit. Some non-profit organizations also use exchange transactions for their fundraising efforts. Pancake breakfasts, charity auctions and bake sales are all forums used by non-profit groups that employ exchange transactions.	Non-profit groups use non-exchange transactions in their daily operations. For instance, a charity can receive a charitable contribution from a wealthy donor, then apply those funds toward providing meals for homeless families. The donor does not receive the value of the donation from the charity, nor do the homeless families pay for the meals the charity provides. Taxpayers pay income tax to the federal government every year, but they do not directly receive any goods or services of equal value. Instead, the government channels the funds toward providing goods and services for the population as a whole.